CAD/JPY Outlook: Bullish Breakout Ahead of Japan GDP Risk

Global Market Sentiment Overview

Global markets are enjoying a burst of optimism following the recent US-China trade truce, which has temporarily paused new tariff measures for 90 days. Equities across Asia and Europe have rallied, commodity prices are rebounding, and overall volatility has declined. As a result, risk-sensitive currencies like the Canadian dollar (CAD) are gaining momentum, while safe havens like the Japanese yen (JPY) are under pressure amid reduced global uncertainty.

Oil prices, a key driver for the CAD, have also seen fresh support due to tightening inventories and seasonal demand upticks, lending further strength to the loonie. In contrast, the Bank of Japan continues to hold a dovish stance, reiterating its commitment to ultra-accommodative policy, which weighs on the yen and supports CAD/JPY upside.

Technical Overview: Bullish Breakout Confirmed

On the daily chart, CAD/JPY has broken out decisively above the descending trendline that has defined price action since December 2024. This breakout, confirmed by a strong bullish candle closing above the 61.8% Fibonacci retracement level at 104.58, marks a shift in market structure from bearish to bullish. Price is currently trading around 106.00, just above the 127.2% Fibonacci extension target at 105.99, opening the way for further upside toward 106.74 (161.8%) and 107.56 (200%).

Momentum indicators support the breakout. The RSI has surged to 60.7, indicating growing bullish momentum with still more room before entering overbought territory. The MACD has confirmed a bullish crossover above the zero line, and histogram bars are widening, reinforcing the strength of the current move. Price is also comfortably trading above the WMA (104.48), adding to the bullish confluence.

Key Fundamental Event:

• Japan’s GDP Release (May 16)

The key macro event for CAD/JPY this week will be the Preliminary Japan’s GDP Growth Rate (QoQ) for Q1, due on 16 May at 02:50 GMT. Markets expect a contraction of -0.1%, down sharply from +0.6% in the previous quarter.

Japan’s economy expanded by 0.6% quarter-on-quarter in Q4 2024, slightly below the initial estimate of 0.7%. This growth was driven by strong exports and capital expenditure, while private consumption remained flat.

• Canadian GDP Data (May 30)

Another key macro event for CAD/JPY this month will be the release of Canada’s Q1 2025 GDP data, scheduled for May 30. Preliminary estimates suggest a 0.4% expansion in the first quarter, indicating that the Canadian economy has shown resilience despite global trade tensions and domestic challenges.

A stronger-than-expected GDP print could bolster the CAD further, especially if it alleviates concerns about economic slowdown. Conversely, if the data disappoints, it may prompt the Bank of Canada to consider policy adjustments, which could impact the CAD/JPY pair.

Summary

The CAD/JPY pair has confirmed a breakout from a multi-month downtrend, supported by global risk-on sentiment and a strong recovery in oil prices. Technicals are bullish, and momentum is rising, but next week’s Canadian GDP report will be crucial for sustaining the rally. Traders should monitor price action near 106.74 and 107.56, and remain cautious ahead of the data, which may temporarily derail or accelerate the move depending on the outcome.

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